Suppose you have decided to make your fortune by running a lemonade stand. You realize that by buying your lemons in bulk, you can reduce your expenses by 50%. Now you can lower your prices to steal customers away from your competition; however, your low cost advantage wouldn’t last long as it probably wouldn’t take long for your competition to realize what you were doing and to buy in bulk, too. Now imagine you invent a technology that processes your lemons reducing your cost by 50%. This proprietary technology can’t be duplicated by your competition and now you have a true competitive moat. The four types of economic moats, according to Professor Bruce Greenwald at Columbia, are:
- Economies of Scale – Walmart
- Customer Captivity – Coke
- Proprietary Technology – IBM
- Privileged Access – Burlington Northern Santa Fe Railroad
So where am I going with this? What do economic moats have to do with business consulting and process reengineering? Well, as Warren Buffett figured out, it’s very difficult for most businesses to continuously earn outsized profits year after year. The only way to do this is to invest in companies who can make mistakes and still earn returns due to being a wonderful business. For the rest of us, the only competitive advantage we have is our ability to execute better than our competition. And that is what this blog is about. Our goal, which is also our passion, is to research the best in business strategy and process improvement so that we, and our readers, can always stay one step ahead of our competition.